NVIDIA (NVDA -0.03%) The company’s stock price has been giving investors a hard time since the start of 2024. At the beginning of the year, it was trading at around $48 a share, adjusted for stock splits. It briefly rose to $140.76 in mid-June, then plummeted to $99 in early August, before recovering to trade around $130 a share in mid-August. It then fell 21% in a few weeks, trading around $103 a share in early September, but recovered some last week and is currently trading around $118 a share.
Whew, it’s been quite a wild ride.
Of course, that’s understandable to a certain extent. As the center of the artificial intelligence (AI) boom, Nvidia is shouldering a lot of responsibility, and expectations for this tech stock are sky-high. Even after beating consensus expectations in its last earnings report, the stock fell. Apparently, Wall Street felt it didn’t beat expectations enough. The stock’s trajectory is now trending upward, but investors are very much focused on the company’s performance and any signs that it’s heading in the right direction.
Of interest to investors is that Nvidia CEO Jensen Huang has been selling some of his Nvidia shares. In the last month alone, Huang sold 720,000 shares for a total of about $78 million.
What does it mean when Nvidia’s chief sells shares?
This sale is not the first time he has sold shares for a profit. Since the beginning of July, Hwang has sold over 4 million shares, totaling about $500 million. At first glance, this may seem like a sign that those who know the industry best think the stock will fall (or get into trouble). But a closer analysis shows that this is not the case. We don’t know Hwang’s exact thinking, but there is no need to worry about this sale.
A simpler explanation is the cost of living. Most of Hwang’s net worth is invested in Nvidia stock. Unfortunately, you can’t buy burgers (or superyachts) with stocks — at least not easily. As the saying goes, cash is king. It’s far more likely that Hwang is simply liquidating a small portion of his massive net worth, currently valued at about $100 billion, to keep some cash on hand.
The Securities and Exchange Commission (SEC) sets rules regarding executives’ buying and selling of their company’s stock. To avoid suspicions of insider trading (and to curb potential public panic related to such trading), SEC Rule 10b5-1 allows executives to publicly outline pre-determined automated stock trades that are handled by a neutral party. While it may appear that Huang just sold the stock, he actually decided to sell it months ago and did so in a way that suggests it had little impact on the price.
While insider transactions can be interesting to track, in most cases they don’t mean as much as they might first seem.
Nvidia is marching ahead
In terms of NVIDIA’s future stock performance, the road ahead has become much more complicated, but I still believe the company is in a strong position. The company’s most recent quarterly earnings report showed continued growth, with revenue more than doubling year over year. What investors should remember is that the big turning point for NVIDIA was the second quarter of last year, so it’s not surprising to see year-over-year growth slowing a bit from the 200%+ growth of the past three quarters. See the explosive growth in revenue in 2023 in the chart below.
NVDA Revenue (Quarterly) data from YCharts.
There were concerns about Nvidia’s ability to continue to grow, but many of the fears people had did not come to fruition. Concerns that shipments of Nvidia’s latest generation of superchips would be delayed were overblown, and demand for the current generation remains very strong. There were also growing concerns that AI’s lack of practical value could hurt Nvidia’s customers and lead them to reduce spending, but this has not yet come to fruition. Companies such as Amazon, Meta Platforms, and Alphabet are still caught up in the AI arms race, and most of them expect to increase spending rather than decrease it.
More customers are on the horizon. Nvidia’s data center revenue is concentrated in large tech companies, but it will soon see broader commercial customers and even governments start investing in earnest. This will be a big benefit to Nvidia. Government contracts can be an extremely lucrative revenue stream, and they provide additional stability because they are slow to change once relationships are formalized.
Finally, it’s still early days for the company’s foray into the automotive industry: AI-powered infotainment and safety features will drive revenue in the short term, but the real goal lies ahead: self-driving cars.
Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and communications at Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jonny Rice has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet, Meta Platforms and NVIDIA. The Motley Fool has a disclosure policy.
